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SSEMI2: Law of Demand, Law of Supply. As prices rise, the quantity demanded of a good or service will fall People buy less stuff when the price goes up! Or: As prices FALL, the quantity demanded of a good or service will RISE. Quantity. Demand. Prices. Quantity. Demand. Prices.
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As prices rise, the quantity demanded of a good or service will fall • People buy less stuff when the price goes up! • Or: • As prices FALL, the quantity demanded of a good or service will RISE Quantity Demand Prices Quantity Demand Prices Law of Demand
Example: Ms. Yeomans needs some pencils for school • At Walmart, she finds a box of 12 pencils is $1 • This is such a great price she decides to buy 5 boxes! • As she is going to the register she sees that all office supplies are on sale!!! • This is great! She hurries back to grab 3 more boxes! • Why did she buy more? $1
As the price a seller can charge for their good or service rises, the quantity supplied will increase Quantity Prices Supply Law of Supply
Example: • Cardinal Diner makes and sells gingerbread cookies • It costs them 10¢ to make the cookies so they have to charge at least 10¢ for them. • They don’t make any money at this price though so they don’t make very many cookies. • If they can charge 20¢ per cookie they will make 100 cookies to sell • If they can charge 30¢ per cookie they will make 200 cookies to sell • Why do they make more?
How do we know what price will eventually be charged? • We use a Supply schedule and a Demand schedule • A list of quantity supplied and quantity demand at a range of prices • Example: • Chicken sandwiches • At $1 consumers will demand 43 chicken sandwiches but producers will only supply 1